Intuit Sheds Its PC Roots and Rises as a Cloud Software Company

MOUNTAIN VIEW, Calif. — Three decades ago, at the dawn of the personal computer age, Intuit shook up the financial software world with its first product, Quicken. The program, which was centered on the simple notion of a virtual checkbook, suddenly made the PC a very useful tool for people to manage the chores of paying bills and tracking personal finances.

Last month, Intuit said goodbye to that heritage and sold Quicken, which still has loyal fans but weak growth prospects, to a private equity firm.

Intuit, a Silicon Valley company, is now focusing on its TurboTax software, which tens of millions of Americans use to file their tax returns, and on QuickBooks Online, an Internet-based version of the company’s flagship bookkeeping software for small businesses and their accounting firms.

Giving up Quicken was difficult, said Brad D. Smith, Intuit’s chief executive, during an interview at the company’s lush green campus here. The kitchen table where the founders designed the product in 1983 still sits in the cafeteria to inspire employees.

But Intuit decided to shed its PC roots and become a cloud software company. “We try to live up to being a 33-year-old start-up,” Mr. Smith said. So the company faced a hard choice: “Do we have this beautiful child that we’ve had for 33 years that we know we’re not going to feed, or do we find it a new home?”

Intuit is a classic case of a onetime disrupter being challenged by an upstart with a new approach and a simpler product. In this case, the newcomer is Xero, a New Zealand company that has wooed small businesses and accountants worldwide with a flexible, online accounting system that can be used from a smartphone and can cost as little as $9 a month.

“I find that for people who’ve never used any kind of accounting software, the ones I’ve put on Xero are so happy with it,” said Stacey L. Byrne, a certified public accountant in San Diego who works with both companies’ products. “They sing its praises because it’s so easy to use.”

In Intuit’s early days, that’s what people said about Quicken and QuickBooks, which made concepts like cash flow, income and expenses, and balance sheets accessible to nonaccountants. But over time, the desktop PC versions of the software became more complicated, and Intuit treated the online versions as an afterthought.

Xero, which started 10 years ago, saw an opening. Intuit essentially owned the market for small-business accounting software in the United States and Canada, but it had ignored the rest of the world. At the same time, the migration of data to the cloud and the rapid rise of smartphones were changing how small business owners, many of whom do not operate from offices, wanted to use technology.

“This was a once-in-a-lifetime land grab to get this data off PCs and into the cloud,” Rod Drury, Xero’s chief executive and one of its founders, said via Skype from the company’s headquarters in Wellington, New Zealand.

Rather than build everything itself, Xero opened up its platform so that banks and financial app makers could plug their services into it, offering users the ability to customize Xero and offering partner companies the ability to strengthen ties with their customers. After establishing a strong foothold in New Zealand and Australia, Xero publicly sold shares in Australia in 2012, and it took its software to Britain and the United States.

Intuit — and the accountants who relied on its software for so many years — took notice.

“For so long it was QuickBooks, and that was pretty much it,” Ms. Byrne said. “Rod Drury poked the bear. He woke up this sleeping giant.”

Intuit embarked on a crash overhaul of its neglected, decade-old QuickBooks Online product. The effort, code-named Harmony, resulted in a new version that, like Xero, was easy to use and open to different apps — even ones like PayPal and Square that competed with some of Intuit’s own services. Intuit also began to push hard into some overseas markets, including Australia, the heart of Xero’s territory.

Mr. Smith said the decision to rebuild QuickBooks Online as an open platform was hotly debated within the company. But the company found that the average small-business owner used 16 to 20 apps, and it concluded that its software needed to accommodate those outside services.

“If you have a competitor that you’re afraid to let work with your product because it’s better than your version of payroll or payments, then it’s not if you’ll get disrupted in the market, it’s when,” Mr. Smith said. “We’ve got to win in the open market.”

QuickBooks Online now connects with about 2,000 apps, and the company said that the open structure has increased customer retention and helped feed customers into the TurboTax side of the business.

TurboTax and Intuit’s traditional QuickBooks desktop software have provided a financial cushion for the company’s strategic shift, and the divestiture of Quicken and some other businesses brought in about $500 million this year. But the pivot has not been easy.

“They haven’t actually been very successful in converting existing QuickBooks customers over to the online product,” said Ross MacMillan, a software industry analyst with RBC Capital Markets. While he lauded the company’s international efforts, “it costs money to go into these new markets and you get less revenue per customer.”

Xero, which last year sold $111 million in additional shares to the American venture capital firms Accel Partners and Matrix Capital, has established itself as a clear alternative to QuickBooks, especially in foreign markets. It now has more than 600,000 paying customers worldwide.

Intuit’s reinvention strategy is bearing fruit. In the quarter that ended on Jan. 31, the company finished with 1,257,000 subscribers to QuickBooks Online, up 49 percent from the previous year. At the same time, sales of the desktop software remained robust, and TurboTax gained market share. The company’s overall revenue grew 23 percent.

Intuit is also diversifying in related businesses, such as a loan marketplace that connects small businesses with lenders, with QuickBooks data supplementing traditional credit ratings. (Quicken Loans, a home mortgage lender that Intuit sold in 2002, is no longer affiliated with the company.)

Analysts said Intuit’s willingness to change course is one of its biggest strengths.

“Whenever Intuit makes a wrong turn, they quickly get off the gravel and back onto the blacktop,” said Brent Thill, an analyst with UBS. “That’s why the company has done so well for such a long time.”

He noted that over a 10-year period, the returns on Intuit’s stock have been larger and more consistent than for some other leaders in the industry, such as Microsoft or Oracle.

Both Intuit and Xero are courting accountants to help them sell their wares, as they have great influence over the software used by their small-business clients. Although many accountants still prefer traditional desktop software, the companies argue that by moving online, accountants will save hours on bookkeeping and can spend more time providing business advice — or just getting out of the office.

Ms. Byrne, a solo practitioner, said going to the cloud has definitely helped her live the lifestyle she wants. Last year, she went to eight baseball games in 12 days. Logging in to clients’ accounts remotely from her laptop or iPad, she said, “I worked the whole time.”

“I’ve worked at 8,000 feet during summer family camp and at the beach on my iPhone,” she said.

A version of this article appears in print on , on Page B1 of the New York edition with the headline: Intuit Sheds PC Roots to Rise as Cloud Service. Order Reprints | Today’s Paper | Subscribe